NVIDIA (NASDAQ: NVDA) has risen in the stock market since early 2019. Graphics expert shares have jumped around 500% in just two and a half years thanks to great growth in the video game and data center business.
However, unpleasant signs are emerging in NVIDIA’s largest business, video games, which can provide investment to investors, going back to a regrettable time in the company’s history.
Graphics card prices went down when miners started throwing out GPUs
Graphics processing unit (GPU) unit prices are starting to decline from their astronomical high levels due to several factors. However, lower demand from cryptocurrency miners appears to be the biggest growth driver behind the correction. That’s not surprising, as miners reportedly bought a quarter of the total graphics cards sold in the first quarter of 2021 to mine cryptocurrency, according to Jon Peddie Research.
But the price drop Ethereum (CRYPTO: ETH) and China’s crackdown on Bitcoin (CRYPTO: BTC) has blocked the demand for graphics cards used for mining operations. Etherscan, Ethereum’s analytics platform, recently showed that the GPU power used to mine cryptocurrency has dropped 19% in the past month. As a result, cryptocurrency miners in China are loading their powerful graphics cards into the used market, according to a report by PC player.
The NVIDIA RTX 3070 GPU reportedly sells for more than $ 400 in China. That’s lower than the card’s $ 499 sticker price. It should also be noted that the RTX 3070 sold for $ 1,300 in the first half of June, according to eBay price data collected by Tom’s Hardware. By the end of the first week of July, the price of the card had dropped to more than $ 1,080.
GPU prices in Germany are also down at a very high level. The price premium of NVIDIA’s RTX 30 series cards was down to 153% of the manufacturer’s recommended retail price (MSRP) in the first week of July, compared to 304% in mid -May, according to a third -party report. .
NVIDIA has been hit hard in the past
NVIDIA was badly hurt by the GPU price slump in 2018 when cryptocurrency miners decided to downgrade their graphics cards in a pre -determined market. Excess graphics card inventory after cryptocurrency investors burned investors as NVIDIA’s wealth declined.
The recent price correction suggests history may be repeating itself and damaging NVIDIA’s momentum. However, chipmaker’s revenue in the fourth quarter of fiscal 2019 for the three months ended January 27, 2019, declined 24% year -on -year after the occurrence of cryptocurrency mining. It took the company a year to recover from the shock. NVIDIA’s revenue in fiscal 2020 declined 7% before it bounced back thanks to strong demand from the video game and data center segments.
However, long -term investors have no reason to worry, even though these developments have caused NVIDIA pain in the past. This is because demand for its latest card is so strong that NVIDIA reportedly decided to cut production of the old generation RTX 2060 graphics card in half to increase supply of RTX 30 series cards. In addition, reports indicate that NVIDIA is already working to increase production of RTX 3060 cards at aggressive prices. to meet the high demand.
So even if gamers decide to buy a pre -made graphics card from a miner – which isn’t always a good idea as they may experience hours of operation and may tend to quickly wear out – NVIDIA still has enough end -market demand to fill.
Consider this: Only 15% of NVIDIA’s installed graphics card user base of 140 million uses RTX series cards. Short-term disruptions in the demand-supply dynamics of the GPU market are unlikely to change the long-term picture. Jon Peddie Research estimates that sales of different GPUs could generate $ 54 billion in revenue by 2025, a sharp jump from last year’s revenue of $ 23.6 billion thanks to video game growth. NVIDIA controls 80% of this market.
The prudent investor should consider buying more NVIDIA shares if the cryptocurrency exchange sends out its stock packaging. However, analysts expect NVIDIA’s revenue to rise more than 26% a year for the next five years, suggesting that this is a top growth stock worth buying with a rare decline.
This article represents the opinion of the author, who may disagree with the “official” recommendation position from Motley Fool’s premium advisory services. We are energetic! Questioning an investment thesis – even one of us – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.